Income Tax (Earnings and Pensions) Act 2003 section 431A

Shares under tax-advantaged plan or scheme

Section 431A provides an automatic deemed election under section 431(1) when shares acquired through certain tax-advantaged share schemes turn out to be restricted securities, removing the need for the employer and employee to make a separate joint election.

• Where employment-related securities are restricted securities (or a restricted interest in securities) and are shares acquired under specified tax-advantaged schemes, the employer and employee are automatically treated as having made a section 431(1) election
• The deemed election applies to shares awarded or acquired under a Schedule 2 Share Incentive Plan where no income tax charge arises on award or acquisition
• It also applies to shares acquired by exercising options under Schedule 3 SAYE option schemes, Schedule 4 CSOP schemes, or Enterprise Management Incentive qualifying options, in each case where no income tax liability arises on exercise
• The practical effect is that any discount or restriction built into these shares is taxed upfront (to the extent it is not already exempt under the relevant scheme rules), rather than being taxed later when the restrictions are lifted or the shares are disposed of